This is the fourth paper in the MEAS discussion paper series. It discusses how to linnk smallholder farmers to markets and the implications for agricultural extension and advisory services.

Introduction

Approximately 1.5 billion people are engaged in smallholder agriculture across the world. They include 75% of the world’s poorest people whose food, income, and livelihood prospects depend on agriculture. They mainly live in rural communities. Despite their important role as food producers and rural stewards, the commercial prospects for millions of poor smallholders remain challenging. Income opportunities have improved since the long period of depressed commodity prices, from the 1980s until the mid-2000s; as commodity prices have recovered, the agricultural sector has shown signs of revitalization. Several global agencies have also renewed their investments in agriculture due to the realization that enterprise continues to be the best hope of improving the livelihood prospects for millions of rural families.

Growing populations, urbanization, and improved communications and infrastructure are generating opportunities in expanding domestic and export markets for those farmers who can consistently link high production with sales. The remarkable rise in Vietnamese coffee production that has taken place since the 1980s is one example of smallholder success. Another example is seen in the significant gains that smallholders have enjoyed in regional grain markets in Eastern Africa, achieved because of urbanization and new procurement policies by the World Food Program. Across the developing world, the expansion of high value horticulture in domestic and export markets is also providing opportunities for greater smallholder inclusion.

While this growth is encouraging, a more general analysis of smallholder prospects reveal a more sobering picture. Studies from several countries in Africa and Asia show that 50-70% of smallholders are not transitioning from subsistence to commercial farming. Studies in Zambia show transition for poor smallholders to high productivity agriculture ranges from 5%–25% each generation. The clear message is that most farmers, particularly those working with 1-2 hectares (ha)<!--[if !supportFootnotes]-->[1]<!--[endif]-->, face challenges that leave them locked in poverty. Experience shows that for agriculture to modernize there must be fewer farmers with larger land holdings. In developed countries, agricultural modernization occurred alongside industrialization, resulting in market forces that incentivized reallocating assets, such as land and labor, to support a more efficient, leaner agricultural sector, thereby reducing the number of farmers.

In many developing economies, urbanization and industrialization are not creating sufficient numbers of off-farm jobs to help consolidate and accelerate agricultural commercialization. This means that millions of smallholders are stuck with increasingly smaller parcels of land and meager prospects of escaping poverty in their lifetimes. The alternative strategy for these rural families is to invest in the education of their children and focus on income smoothing. This strategy offers families an alternative prosperity pathway that seeks intergenerational options for literate and numerate children who can access higher paying off-farm employment in the future. However, even this longer-term, non-farm strategy means that present day smallholders must upgrade their systems to achieve food security and consistently earn enough income from farm sales to pay for children’s nutritional needs and education.

Overcoming the commercialization barrier requires an upgrading process that includes investment in local infrastructure, strengthening of business services, and improving farmer skills. In many low-income countries, these investments have not been made, and, with the reduction in government extension services over the past 30 years, most farmers remain unable to access vital technologies and services. Lack of government investment has led to a more pluralistic model, but one in which extension delivery and services are spotty.

The question then remains, what types of investment in extension systems will provide consistent results in upgrading the production and market performance of smallholder farmers?

This paper explores the changing role of agricultural extension services and the growing focus on the marketing and business needs of smallholder farmers. Key issues in this debate include finding better means of coordinating and sustaining services, and generating policies that build the capabilities of farmers to raise incomes by linking to various types of markets — including informal domestic and regional markets, traditional cash crop markets, formal and higher value markets, and emerging food aid and structured public markets (Poulton, Dorward and Kydd, 2010).

This paper is useful for development practitioners who are involved, directly or peripherally, in agricultural projects or programs because it outlines how agriculture can, over time, provide a pathway out of poverty. The gains achieved by project beneficiaries are often lost when the project ends and support is no longer delivered, but practitioners can avoid this by taking the proactive steps of building farmers’ capacity, creating links with local supply chain actors, and coordinating services with other actors and developing fee-for-service field agent networks. Extension delivery systems have the heavy burden of helping various farmer types to improve their production and market linkages despite having vastly different needs and capabilities. Oftentimes the farmers have very few resources to invest, which can create long-term dependence on extension systems and other service providers. The techniques outlined in this paper can empower decision-makers within extension systems, as well as extension agents on the ground, to seek new ways of assisting smallholder farmers through business-oriented approaches that build the capacities of farmers so they can become self-sufficient. Those studying International Development, Agricultural Extension, or Development Economics will benefit from learning about the various types of market options that are available to different types of smallholder farmers, as well as the obstacles they face and what it takes to enter and remain, in those markets. They will also learn how ICT and business services can complement the role that extension plays and how savings groups can be a viable gateway to more formal financial services.

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